Which loans typically restrict the right of prepayment?

Subprime home loans often come with prepayment restrictions as part of their contractual terms. These restrictions are typically designed to protect the lender's investment, especially because subprime loans are extended to borrowers who may have a higher risk of default.

Lenders may seek to mitigate potential losses by including prepayment penalties that restrict the borrower's ability to pay off the loan early, which can otherwise result in a loss of interest income for the lender. This means if the borrower wants to refinance or pay off their loan ahead of schedule, they might face a financial penalty, deterring them from doing so.

In contrast, many conventional loans and government-backed loan options, like FHA loans, typically provide more flexibility for borrowers in terms of prepayment. These types of loans are often designed to encourage homeownership and may not impose such restrictions. Similarly, home equity lines of credit generally allow for easier repayment without the imposition of penalties, providing borrowers with greater flexibility. Thus, the restrictions found in subprime home loans differentiate it from the other loan types listed.